How have the money multipliers for M1 and M2 changed in the U.S. since the 1980s?

The correct choice indicates a decrease in the money multipliers for M1 and M2 in the U.S. since the 1980s, which reflects the underlying dynamics of the banking system and broader economic trends.

Since the 1980s, several factors have influenced the money multipliers. One significant factor is the increased regulation and changes in banking practices that have occurred over the decades. For instance, banks have adopted more conservative lending practices, which can lead to a lower money multiplier effect because banks hold onto a larger portion of deposits as reserves rather than lending them out. This behavior is particularly noticeable during economic downturns when uncertainty prompts banks to maintain higher reserve ratios.

Moreover, the rise of electronic money and payment systems has also influenced how money is created in the economy. Both M1, which includes physical cash and demand deposits, and M2, which adds savings accounts and other near-money assets, have seen shifts in how they are measured and the velocity with which money circulates. The trend in stable or declining multipliers suggests that increases in monetary base (such as during quantitative easing) do not necessarily translate into proportional increases in M1 and M2, as banks may not lend out as much.

In summary, the choice that states